Hundreds of US companies keep trillions of dollars in debt in off-balance-sheet subsidiaries and partnerships, skirting the consolidation rules of FASB 94, FASB 125 and FASB 140. If a company creates an SPE, a legal structure, with a 3% minimal equity infusion, is does not have to consolidate the transaction under SEC and FASB rules. Banks arrange many of the devices and are big users themselves. JP Morgan revealed in the Enron bankruptcy that it had nearly $1 billion in potential liabilities stemming from a single 49%-owned Channel Islands entity called Mahonia that traded with Enron. Dell Computer had a joint venture with Tyco called Dell Financial Services (DFS) that originated $2.5 billion in customer financing, mentioned only as a footnote to Dell’s accounts. Dell owned 70% of DFS, but did not control it and therefore could keep DFS debts off its own balance sheet.

To move assets off its books, a company typically sells them to an SPE, funding the purchase by borrowing cash from institutional investors. As a sweetener to protect investors, many SPEs incorporate triggers that require the parent to repay loans or give them new securities if its stock falls below a certain price or credit-rating agencies downgrade its debt or other triggering events. However, the International Accounting Standards Board (IASB) resisted this type of treatment. Under pending European Union legislation, all listed companies in the EU had to report under IASB by 2005, except those that report under US GAAP, which would have to move to IASB by 2007.

http://www.atimes.com/atimes/Global_Economy/Il01Dj02.html